Illinois used faulty methods for withdrawing federal Medicaid money, resulting in "a perpetual 'treadmill effect"' of regular overdraws of dollars that the state later had trouble repaying, federal auditors said in a report released Monday.
The state's withdrawals exceeded its actual Medicaid spending by an average of $60 million per quarter during the three years reviewed, according to the report from the U.S. Department of Health and Human Services' Office of Inspector General.
The federal government may have lost as much as $792,000 in interest during fiscal 2010 through 2012 because the state repaid the money two to six months later, the report said.
Meanwhile, Illinois used the money for other purposes. The state deposited the overdrawn Medicaid money directly into the state's general revenue fund, the same fund used for transportation, education and pensions, the report said. The money was used to pay non-Medicaid expenditures because it was mixed in with other money in the fund.
Federal rules require states to limit the amount of Medicaid transfers to what the states really need and to minimize the time states hold onto the money.
A watchdog group called the report's finding an example of Illinois' irregular budget practices that have led to a multibillion-dollar pile of overdue bills.
"The audit clearly points out that the state has used federal Medicaid dollars to mask other financial challenges and avoid cutting spending or increasing revenue" to balance the budget, said Laurence Msall of the Civic Federation, a Chicago-based policy analysis organization.
But the report concluded that all the money obtained by Illinois was legitimately supported by state spending on the Medicaid program. That's important, said Ralph Martire of the bipartisan Chicago-based Center for Tax and Budget Accountability.
"It's not like the state is trying to defraud the federal government," Martire said, although he said Illinois may have "some sloppy internal systems" it needs to fix.
Illinois "justified every dime that it claimed," said Michael Casey, finance administer for the state's Medicaid program at the Illinois Department of Healthcare and Family Services. He called the repayment problems cited by the audit "a matter of timing."
Casey said that the state's outdated, 30-year-old computer system can't do daily calculations of federal reimbursement rates for a half-dozen different programs, making it necessary to estimate how much money to draw. The system will be replaced by the end of 2017, he said.
Medicaid is a federal and state program that pays medical expenses of the poor and disabled. In Illinois, the state and federal governments each pay for about half the program's expenses. The Illinois Medicaid program now covers 3 million people with a budget of about $18 billion.
The federal review was part of a series related to states' withdrawals of federal Medicaid money.
It's the latest difficulty for Illinois Department of Healthcare and Family Services Director Julie Hamos, who earlier this year was hit with an Illinois audit finding the program overpaid $12.3 million for medical care for 2,850 people who were dead.
In a letter responding to the new federal audit, Hamos said her department is addressing the problem "to reduce the amounts of overdraws and underdraws of federal Medicaid funds." Hamos said the expansion of managed care in Illinois' Medicaid program "should allow for more consistent payment cycles and better estimates of the federal share of payments."
Illinois has lagged behind other states in adopting managed care, which pays insurers and health networks fixed per-patient fees instead of paying separately for every appointment, surgery and test. A 2011 state law required expanding managed care to half the state's Medicaid patients by 2015.